The office product industry is about to become smaller.
Office Depot and Office Max, agreed to merge to become the world’s second
largest office product company behind Staples. The pair had combined revenue of
about $18.5bn in the last fiscal year. They expect to save about $400m to $600m
per year within three years through layoffs, streamlining of back-office
functions and combined advertising.
Like much of the retail industry, office product retailers
such as Office Depot, OfficeMax and Staples are adapting to a new retail
environment. As more spending for such goods shifts to the internet, these
companies have had to adapt and adjust their supply chains. While Staples took
a similar approach as Amazon and expanded the number of fulfillment centers
closer to end-users, Office Depot has taken a different approach and opted to
consolidate facilities. As of 2012, the company had 13 distribution centers and
2 cross dock facilities in the US and 23 distribution centers outside of the
US. Both Office Depot and Staples facilities are highly automated and utilize
robotic systems such as Kiva for order fulfillment management.
OfficeMax, the smallest of the three companies, has 38
distribution centers in the US, Puerto Rico, Canada, Australia and New Zealand.
While Staples has created specialized fulfillment centers for online orders,
OfficeMax appears to fulfill retail, businesses and online orders within the
same facilities.
While it is likely the combined Office Depot and OfficeMax
will result in a further consolidation of distribution centers, the fate of
each one’s Mexican venture maybe in question. Earlier this month, various
publications reported Office Depot was in talks to sell its 50% stake to its
partner, Grupo Gigante. The partnership has over 200 stores in Mexico and
Colombia and generated about $24m for Office Depot. OfficeMax also has a joint
venture in Mexico and operates about 82 stores in the country. It is not
certain what the status of OfficeMax’s joint venture will likely mean to this
merger.
Once approved, the combined Office Depot and OfficeMax
should be able to offer supply chain savings, however, even the office supply
leader, Staples is struggling as competition from online retailers such as
Amazon take a bite out of revenue. Brick & Mortar retailers will need to
provide innovative solutions in order to compete effectively.
